Don’t feel bad about backing off for a bit if the time is right.
Inflation vs Inflated
Generally they say real estate values follow inflation. While that may be true sometimes, in most major cities in Canada we are seeing more inflated values rather than values following inflation.
Real estate appears to be a hot item in most populated areas of Canada. Values have skyrocketed and some older generations made out like bandits on their life long holdings. Investing in real estate during their era proved to be an excellent choice, and that combined with their investments in stocks and other assets is paying off exponentially for them.
You’ll hear a lot from older gens about how real estate is the “be-all end-all” for investment. Sure, definitely worked out for some of them seeing increases in values of 500-1000% in some cases over a few decades.
Real estate can be a great investment, it probably always will be, but that type of baby-boomer real estate rise is unlikely unless people start making a lot more money. People’s income certainly hasn’t followed the same trend as real estate.
With values in some cities such as Vancouver and Toronto bubbling over and rising interest rates it is no surprise that people are wondering how they will ever be able to get into the market. It might be the time to wait, as a few things are changing now.
The Rules are Changing
When people can borrow too much money they can be quickly crushed by changes in interest rates and job markets. This sends them into defaulting and this is not good for our economy. A large combined defaulting effort could swing markets drastically and isn’t a sound way to continue doing business.
This has been taken into greater consideration and when it comes to getting a mortgage now in Canada they have tightened up the rules. It is now a touch more difficult to buy a home without paying cash, the stress tests have been heightened.
Younger generations will have to find other solutions for longer periods of time while they pay down existing debt and build larger down payments. They may be inclined to buy less home as their financing ability may have been lowered.
These changes can create a smaller market of buyers, and a influx of sellers, lowering prices.
Smaller demand = supply glut = lower values.
Don’t be discouraged by these high values. Some say the bubble is going to burst. Possible, but it could also just slowly seep over time.
It isn’t the end of the world.
Markets can swing over time and then either the government or public organizations step in to make the appropriate adjustments in a bid to reach a stable market health again.
No Harm in Waiting
If you are stalling a purchase of a home in anticipation of a cooling of the market, you probably aren’t alone, and it might not be the worst play.
The choice to wait for a better time to buy is entirely your own and you should do what you are comfortable with.
Who knows, waiting a couple of years could have benefits depending on how far the values have exceeded where they ought to be.
Time will tell.
Besides, as long as your current living situation isn’t financially causing you any problems, stepping back for a bit just allows you to build a larger down payment. So that’s a bit of a silver lining for this situation. The lower your down payment, the more interest you are paying, and it makes the investment in real estate less profitable.
The key is being able to live cheaply now. If your rent is twice as much as you’d be paying for a mortgage and you have a down payment, do not wait for the market to shift unless you concretely believe based on fact that it will save you at least 100 grand. Maybe you could try moving to another area where the rent isn’t as much and invest in a bicycle or a bus pass to commute the extra distance.
It’s Your Choice
At the end of the day it is up to you and your specific situation. Don’t buy because someone else did. Buy because it is the right thing to do financially at that time FOR YOU. Talk to mortgage and real estate professionals about when the best time to pull the trigger is. (Find some unbiased ones if you can such as family or friends that you trust).
You will want to know how much ideally you should have saved to avoid extra cost due to insurance. When is the best time of the year? What are their opinions on where the market is and where it is going for the area that you are interested in.
Don’t feel like you have missed the boat if you have to let go of the home ownership dream for the time being. There will be a time and a place you just have to be patient.
If you decide to step back for a while until the market cools, rest easy knowing that while your renting you aren’t responsible for fixing the dang water heater next time it fails.